The Organisation for Economic Co-operation and Development (OECD) on Tuesday presented a dismal picture of the ailing Spanish economy for this year and the next, with the jobless rate approaching 27 percent as an unprecedented six million people search for work.
In its latest Economic Outlook report, the Paris-based organization predicted the contraction in economic output next year would come in at 1.4 percent, almost triple the government’s forecast, with growth reappearing the following year, albeit at the anemic pace of 0.5 percent. The only encouraging point it sees is an ongoing expansion in exports, which are set to rise 2.5 percent next year and 1.4 percent in 2014.
The OECD believes the ongoing recession will prevent the government from meeting its public deficit targets of 6.3 percent of GDP this year, 4.5 percent in 2013 and 2.8 percent in 2014. Instead it sees a shortfall of 8.1 percent this year, 6.3 percent in 2013 and 5.9 percent in 2014. As a result, outstanding public debt is due to hit 97.6 percent of GDP in 2014.
The OECD recommended the government take a moderate approach to getting its fiscal house in order. “Fiscal consolidation is expected to have stronger than usual effects on growth in this credit-constrained environment, which militates against taking further measures to hit headline targets especially if growth turns out much weaker than expected in government plans,” the OECD said.
It said if that is the case then the administration of Prime Minister Mariano Rajoy “should stand ready to let the automatic stabilizers operate were economic conditions to materially diverge from those expected in the government budget.”
The most worrying aspect of the organization’s report is its take on the labor market. The multilateral agency expects the jobless rate to rise for 25.0 percent this year to 26.9 percent in 2013, easing only slightly to 26.8 percent the following year.